NEW YORK — A day after the U.S. stock market took another nosedive and appeared shakier than ever, the Federal Reserve and central banks worldwide banded together to inject billions of dollars into global money markets in a bid to stave off the growing crisis.

The Fed said in a statement today it had authorized a $180 billion expansion of swap lines, or reciprocal currency arrangements, with the European Central Bank and central banks in Britain, Canada, Japan and Switzerland, including amounts up to $110 billion by the ECB and up to $27 million by the Swiss National Bank.

The Fed also said new swap facilities had been authorized with the Bank of Japan for as much as $60 billion; $40 billion for the Bank of England; and $10 billion for the Bank of Canada.

News of the central banks' move appeared to boost the confidence of some investors, possibly contributing to the late-day recovery in some markets. European stocks rose in early trading, with Britain's FTSE-100 up 1.3 percent and Germany's DAX up 0.3 percent.

Asian markets also bounced back slightly from dramatic early losses. Hong Kong's Hang Seng Index, which sank more than 7 percent at one point, closed virtually flat at 17,632 points. Tokyo's Nikkei 225 index ended down 2.2 percent at 11,489.30 after falling by nearly 4 percent.

Russia's main stock exchanges were mostly closed today, a day after regulators suspended trading amid a dizzying plummet in share prices. The MICEX resumed limited trading; it wasn't immediately clear when the RTS would reopen.

U.S. MARKET IN TURMOIL

The Dow Jones industrial average, which only two days earlier had suffered its steepest drop since the days after the Sept. 11 attacks, lost another 450 points. About $700 billion in investments vanished.

One day after the Federal Reserve stepped in with an emergency loan to keep American International Group Inc., one of the world's largest insurers, from going under, Wall Street wondered which companies might be next to falter.

A major investor in ailing Washington Mutual Inc. removed a potential obstacle to a sale of the bank, and stock in two investment banks, Morgan Stanley and Goldman Sachs, was pummeled.

It was the fourth consecutive day of extraordinary turmoil for the American financial system, beginning with news on Sunday that another venerable investment house, Lehman Brothers, would be forced to file for bankruptcy.

The 4 percent drop yesterday in the Dow reflected the stock market's first chance to digest the Fed's decision to issue an $85 billion taxpayer loan to AIG, which it could convert into a majority stake in the company. AIG is important because it has essentially become a primary source of insurance for the entire financial industry.

"The economy is not short of money. It is short of confidence," said Sung Won Sohn, an economics professor at California State University.

The financial stocks in the Standard & Poor's 500 dropped even more, falling 10 percent, and insurance that backs corporate debt soared for the last two surviving independent U.S. investment banks, Morgan Stanley and Goldman Sachs.

Worse, the short-term credit markets remained frozen, with overnight interest rates soaring for loans between banks and overnight loans to businesses.

Mortgage rates, which had fallen after the government's takeover of Fannie Mae and Freddie Mac, rose again, removing hope that the housing crisis, the kindling for the broader financial meltdown, was hitting bottom.

New statistics showed construction of new homes and apartments fell 6.2 percent in August to the weakest pace in 17 years.

The Treasury Department, for the first time in its history, said it would begin selling bonds for the Federal Reserve in an effort to help the central bank deal with its unprecedented borrowing needs.

Treasury officials said the action did not mean the Fed was running low on cash, but was simply a way for the government to better manage its financing needs.

Separately, the Securities and Exchange Commission tightened rules on short selling, the practice of betting that a stock will fall.

A $62 billion money market fund — Primary Fund from Reserve — on Tuesday saw its holdings fall below its total deposits — a condition known as "breaking the buck" that hasn't happened to a money market fund since 1994, Rosenberg said. Money market funds are supposed to be conservatively invested and almost as safe as cash.

CANDIDATES WEIGH IN

Democratic presidential nominee Sen. Barack Obama appeared yesterday in a commercial to outline his economic plans and caution it won't be easy to fix the nation's financial problems.

"The truth is that while you've been living up to your responsibilities, Washington has not," he said.

Republican Sen. John McCain's running mate, Alaska Gov. Sarah Palin, said of the AIG move: "It's understandable but very, very disappointing that taxpayers are called upon for another one."

The Dow fell 449.36 to 10,609.66, finishing near its lowest point of the trading day. The index is down more than 7 percent just this week and more than 25 percent since its record close less than a year ago, on Oct. 9, 2007.

Many economists worried about the unintended consequences of the Fed's actions.

"Every time that umbrella widens, it gets heavier and heavier for those holding it up — which is the taxpayer," said Bernard Baumohl, chief economist at the Economic Outlook Group in Princeton, N.J.